Market Update August 2021

“Investing isn’t about beating others at their game. It’s about controlling yourself at your own game” (Benjamin Graham)

August, traditionally the quietest month in the investing calendar with summer holidays, government recesses etc has finished and we enter the last third of 2021, hopefully better off than when we entered the first third…data being And on the currencies the US Dollar  has spent the month edging its way up against competitors, albeit without too much vigour.. So what do these numbers tell us?  Aside from S&P investors being extremely happy with over 20% gains  so far this year, the difference in performance of geographical locations is remarkable, those Emerging Market investors who are 6.1% down would be less than impressed. On the face of it, the data would suggest US is the place to be, the UK also yielding good returns and Asia less so. Oddly this seems disconnected with the general feeling that is Asia and EM, especially China is best poised for economic growth having seemingly shrugged off the Covid pandemic easier than other countries. The recent World Economic Outlook Forecast echoes some of that feeling, suggesting Chinese and Indian economies will outpace the US .The Indian economy set to grow by 9.5% this year and 8.5% next year, China 8.1% and 5.7% and the US 7.0% and 4.9% https://www.imf.org/en/Publications/WEO/Issues/2021/07/27/world-economic-outlook-update-july-2021 Foreign Capital inflows into China in 2020 overtook the US for the first time since 2014. India saw its overseas investment increase by over 27% and is now third, while the UK saw foreign investment fall by 50%, dropping them to 12th on the global league table. But as has recently been stated there is a disconnect between “Wall Street and Main Street” and stock market performances and economic growth can have a complex correlation To really understand where the growth has been we need to drill down further. Whilst the S&P is a US based market with US companies listed there, many are indeed global and derive their revenue from all over the planet. We also have the situation where the five giants, Facebook, Google, Microsoft, Amazon and Apple have their market capital in the trillions of dollars and therefore have a large impact on the S&P performance. The continuing growth of these companies and their share prices are a factor in the S&P’s 20% + growth in the last eight months. Looking at sectors is also a valuable part of choosing the right path for you. This can be said of your stock market wealth and other overall assets. Owning some property and non stock market correlated assets is important. Diversification  is important but over diversification can be detrimental. It’s all about your journey, your timeframe, your results. This is achieved with sound planning and management. I came across this very informative site recently. it provides lots of interesting historical data. http://www.lazyportfolioetf.com/ I often talk about heavy positioning of client portfolios in sectors of Technology, Healthcare and Consumer Staples, shying away from Financials and Commodities. This data illustrates the strength of these sectors, Tech, unsurprisingly being the standout performer with over 28% annualised return over the last five years (three – five years in my view is a good timeframe to asses performance). Gold made just 5% per annum and oil would last lost you over 8% There is plenty of interesting data to digest here. Whilst we all know that past performance does not guarantee future success, its useful to know. Again as with the S&P performance there is often more to the numbers than meets the eye. Once identifying the areas to buy, we then need to look at passive or active approach. I have written on many other occasions about this old argument and am not looking to do so here, other than with large cap companies, only 20% of managers outperform, small cap its nearer 70%. So there are always many aspects to consider, and it takes a methodical process to get this right. Sectors, using managers, ETFS, Large Cap , Small Cap, Geography, Currency the list goes on and on. So the best performing country stock market in the last five years….Taiwan – annual gains of 19.14%. Making up the other top five is Netherlands, USA, Denmark and surprisingly  Russia, as it seems we hear more about the other EM giants. Bulgaria by the way had you picked them you would have made 20% total return in the last five years.